FKP tests whether its shares are hot property

Debt reduction and plans for new acquisitions have driven property development company FKP to embark on a $50 million capital raising.

The company, with a market capitalisation of $343 million, announced yesterday that it would issue about 17.2 million new shares through a book-build, at a price of between $2.65 and $2.75. This compares with the $2.98 price at which the company's stock was last traded on the market.

FKP, which subdivides residential and commercial properties and has interests in office blocks and retirement villages, went into a trading halt yesterday as the details of the book-build were announced and bids on the latest stock issue were received.

Company secretary Trevor Toner said a related transaction had gone through earlier in the day - about 6.6 million shares changed hands before the market opened, at just under $2.74.

But it was not part of the book-build, where investment houses nominate the price they are prepared to pay for the stock. Mr Toner said it was part of "strategic" manoeuvring on ownership but declined to comment further.

FKP's presentation to investors included a reference to a group called Mulpha, which bought 5 per cent of the company from founding shareholders Rod and Des Forrester.

The document said that the founding shareholders still held a 20 per cent stake in FKP, a top 200 company that has been listed for more than a decade.

Mr Toner said debt and further expansion were behind the company's decision. Debt levels were driven up by the takeover of Forest Place Group - the 85 per cent stake cost $26.8 million - in addition to the $40 million purchase of 31 Queen Street.

The new share issue is expected to drive net debt down to 27 per cent when measured against total assets, compared with 37 per cent now.

According to the company's most recent financial report, for the six months to December 31, borrowing costs had risen 2.5 times on the previous corresponding period as interest bearing liabilities rose from $7.8 million to $30.1 million.

Net profit was up 40.4 per cent to $16.5 million, and the company has since predicted full-year profit this financial year will be $36.4 million, rising to $44.3 million in 2004-05.

The offer document said the company was considering "further 'well-priced' corporate acquisitions that provide synergy value".